Deal or No Deal: Are Coupons Good for Business?

In this era of extreme couponing and group deals, consumers love to savor a restaurant meal for the price of fast food or get a facial for half off. But are these bargains a good deal for small merchants?

Whether they’re distributed through websites such as Groupon or Living Social or mailed a la Valpak, discounts and promotions need to be highly tailored to your business if they are going to turn a profit.

“You really have to be careful about how you structure these deals if they are going to boost your bottom line,” said Mary Song, CEO of Yuupon, a website specializing in travel deals. “A small business owner, there are a number of things you have to consider if these deals are going to make sense for your small business. You may want to limit the deal to a certain number of customers, a particular season or time period. You don’t need to offer a deal on a Friday or Saturday night when your restaurant is already full, or a discount on a hotel room at a time when all of your rooms are normally booked.”

The type of discount offered — be it a buy one, get one (BOGO) free or a price cut — also depends on the business and the clientele. A diner might want to offer a BOGO deal, but a pizza shop might do better with $2 off as fewer people need two pizzas.

Song said that small business owners should consider alternatives to dollar-off and percentage discounts, such as adding free services for which they would normally charge.

“A small hotel that is concerned about keeping its rate intact could offer free parking or Wi-Fi at very little cost, or a spa could add a service to a package,” Song said.

That strategy may not work for businesses such as restaurants, which have fixed food costs. “In that case, they need to do something to get people in on slower nights or that will encourage them to increase their spending or come in more often,” she told BusinessNewsDaily.

Julie Anne Mossler, a spokesperson for Groupon, said small business owners have to take a hard look at their businesses and their customers when deciding on the best way to promote their business.

“Sometimes, business owners’ eyes are bigger than their stomachs,” she said. “They want 500 new customers, but they can only really handle 50. We can work with them to put a cap on the number of offers that can be redeemed, for example.”

Mossler cautions that small businesses can be victims of their own success if they make these offers too aggressive. “If you’re a bakery and offering a free cupcake with the purchase of a cake, for example, be sure you can handle the increased volume, as you don’t want new or existing customers to show up and not be able to get the items that they are expecting.”

In today’s world of social media and instant online reviews customers are eager to share their opinions, good and bad, Mossler said.

Mossler said Groupon works with small business owners to construct the best offers based on a number of criteria, such as average sales and busiest times.

“But the business owners have to provide accurate data, so it all goes back to knowing your business. The profitability of the deal is dependent on accurate information from the business owner,” she said.

Vince Vigorito, owner of the Long Island, N.Y., franchise of the direct mail coupon firm Valpak, said small merchants need to do a very careful analysis of every deal, as they have a smaller margin for error than larger organizations.

“If they make a bad deal, it can break their business,” he said. “We go through a very extensive needs analysis with our clients. They need to determine the return on the investment that they want, and then figure in expenses, the cost of the discount and profit margins.”

“Small business owners have to manage their expectations," Vigorito said. "One problem I see is that they make commitment and then get out too early. They need to consider the frequency and the volume of the offer. If a roofing company sends out a coupon once to 10,000 homes, that is probably not going to work. If they are going to do something like that, I encourage them to wait another month or two and make more of a commitment.”